Do foreign social security contributions qualify for tax relief?

I am a French citizen deputed to an Indian subsidiary for employment from the month of May 2025 for a period of 9 months. My employment continues with my employer in France and it continues to pay my salary including the social security contributions (pension, disability insurance, and health insurance). 

My HR informed me that my taxable salary in India will not be reduced by social security contribution amounts paid by parent company employer or my own contribution. Whereas my Indian colleagues get such deduction here. Can you guide me on this?

-Name withheld on request 

Under Indian income tax law, employer contributions to a recognised provident fund are tax-exempt up to ₹7.5 lakh in a financial year. Any amount exceeding this threshold is taxable in the hands of the employee. 

However, contribution to Indian provident fund may not be required by a foreign employer if you are covered under the India-France Social Security Agreement, which allows exemption for foreign nationals deputed to India from contributing to the Indian recognised provident fund for up to 60 months. 

This exemption is available if the employee secures a Certificate of Coverage (CoC), proving that contributions are instead being made to the home country’s social security system—in this case, France.

When an employer contributes to the French social security system instead of an Indian recognised provident fund, such contributions are classified as contributions to an unrecognised provident fund for Indian tax purposes. Typically, this means the full amount may be treated as a taxable perquisite in India.

Also read: Will my foreign salary be taxable in India?

Judicial view on contingent benefits

However, Indian courts have clarified that such foreign contributions should not automatically be taxed. If the employee does not have an immediate or enforceable right to the foreign fund (i.e., the benefit is contingent on future events like retirement or fulfilment of eligibility), then the contribution does not qualify as a taxable perquisite.

This legal reasoning is based on the principle that contingent benefits, which are not vested in the employee at the time of contribution, do not represent a definitive gain. Therefore, they should not be taxed under Indian income tax law.

For the exemption to apply, the employer’s contribution must be mandatory, and the employee should have no vested right or claim over the money at the time of contribution.

Also read: NRI Taxation Explained: How India taxes non-resident Indians

The employee’s own contributions to provident fund schemes also attract different tax treatment depending on the tax regime opted by the employee - whether old tax regime or new tax regime. Under the old tax regime, contributions to a recognised provident fund are eligible for deduction under Section 80C of the Income-tax Act, 1961. But under the new tax regime, no such deduction is allowed. Moreover, no deduction is permitted for contributions made to unrecognised provident funds under either regime.

Despite this, certain court rulings have supported a different treatment for employee contributions to foreign social security schemes. Where such contributions are mandatory under the laws of the employee’s home country, courts have ruled that this constitutes a “diversion of income by overriding title.” This means the contribution never becomes part of the employee’s taxable salary in India.

To qualify for this treatment, the contributions must be:

• Statutorily required under home country law,
• Made without a vested right to the employee at the time of contribution,
• Beneficial only upon fulfilment of future conditions (e.g. age of retirement), and
• Permitted as a deduction from salary under the home country’s tax laws.

If all these criteria are met, the contributions—both employer and employee—may be excluded from the calculation of taxable salary income in India.

Also read: Income tax benefits for resident vs non-resident taxpayers explained

Harshal Bhuta is partner at P. R. Bhuta & Co. CAs